Chinese real estate giant Evergrande, which has an estimated debt of $300 billion, is still paying $83.5 million in interest on a bond loan. At least that has the Securities Times reported.
According to this Chinese state newspaper, Evergrande transferred the amount to Citibank on Thursday. Citibank would then transfer it to creditors. Evergrande threatened to default on his payments next weekend.
Actually, the ailing real estate group should have paid the interest on the bonds a month earlier. When that didn’t happen, a 30-day grace period began in which the company could still try to pay. That term ends on Sunday morning. If the company still has not paid, larger investors will then be able to force Evergrande into a (bankruptcy) settlement through the courts. That will probably be prevented now.
Period of grace
Evergrande broke the silence surrounding the company on Wednesday by stating that the grace period after missing the September payment had not yet expired. Previously, international parties had complained that they hadn’t heard from Evergrande. They fear that they will end up at the back of the line if Evergrande eventually goes bankrupt.
Evergrande is far from out of the woods. The payments now give some breathing space to try to find sufficient liquid assets to be able to meet future payment obligations. On October 29, the grace period for an interest payment that should have been paid on September 29 expires. In total, Evergrande missed payments of $280 million due on September 23 and 29 and October 11.
The news about the payment immediately led to an increase in the price of Evergrande shares in Hong Kong, by almost 8 percent. Later on Friday, half of that price gain was left over. On Thursday, shares had fallen just 14 percent; the stock market then responded to news that Evergrande had failed to sell a majority stake in its property management business to smaller industry peer Hopson.
Evergrande isn’t just attracting so much attention because its debt is about 2 percent of China’s gross national product. There is a great fear that many other real estate companies, and the banks that make money from them, are also at risk – and ultimately the Chinese economy too. There is already the luxury real estate group Fantasia, which, like real estate company Sinic, was unable to pay the interest on bonds on time.
Real estate makes up about a quarter of the Chinese economy, and about 40 percent of financial institutions are said to have outstanding loans in this sector. The Chinese central bank PBOC called the effects on the financial sector “manageable” a week ago. On Thursday, China’s Banking and Insurance Regulation Commission said Evergrande was an “individual” case. For example, financial institutions are trying to allay fears inside and outside China that the problems in Chinese real estate are dragging on other parties.
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